Latvia affirms, yet again, it will someday privatize Lattelecom and LMT

This is beginning to remind me of a black humor headline from way back, when popes were dying frequently -- "Pope dies yet again".
Well, Latvia's Prime Minister Valdis Dombrovskis and not-too-swift Minister of Economics Artis Kampars (he just offered to buy Russian gas at winter premium prices) said, yes, we want to sell off the state shares in Lattelecom and Latvian Mobile Telephone (LMT). Latvian governments have been saying this since the late 1990s and "jack shit" has happened. I think that "jack shit" will happen again in 2011. An earlier Latvian government passed up a chance to sell the state stake in both companies for around 500 million USD (?) back in what the Latvians call the "fat years." Now the government keeps muttering that they don't want to sell to "the Swedes" because that would create a monopoly.
This is horseshit. There is competition on voice telephony with most people in Latvia using mobiles, and fixed domestic voice is no longer tariffed if you buy a package deal -- phone plus internet (optical 100 Mbps or more) and TV. On the cable TV market there is competition and in fast internet as well -- both Baltkom and Izzi offer 100 Mbps on different technologies. The problem is that Latvia cannot politically unfuck itself and get on with getting the government out of telecoms. It also has to realize that there isn't exactly a queue around the block waiting to buy the 51 % stakes in both operators. TeliaSonera is probably it, unless you want to sell to some bizarre, sleazy Russian consortium.
And so the never ending story continues. That is my piece of cynicism to round out the year.

No one first to name a price in Latvian telecoms deal?

NOTE: I got tweeted by an executive at Lattelecom, see below.

The Latvian government seems to have re-opened the seemingly dormant issue of selling its holdings in fixed network operator Lattelecom and mobile operator Latvian Mobile Telephone (LMT). During an October 16 television talk show, where this blogger was one of the journalist participants, Minister of Economics Artis Kampars said the government was ready to consider selling its telecom assets, but added that the most eager (and probably only) potential buyer, Sweden's TeliaSonera, had not named a price in talks with the Latvians in early September. By Kampars' account, that meeting was one where the sides got nowhere by saying: "What do you want for the companies?" "No, you tell us what you are ready to pay." "No, you please tell us what you want..." and so on.

Kampars also repeated what he had said publically a few days earlier, that state assets, including Lattelecom and LMT, would not be sold "on the cheap." TeliaSonera recently completed acquisition of all remaining shares in Eesti Telecom (which, unlike Lattelecom and LMT, is a traded company and already had a majority holding by the Swedes). Telia Sonera was less successfully with Lithuania's TEO, failing to get the necessary percentage of shares to delist the company and force the sale of any remaining minority shares.

I haven't been in touch with my Swedish sources about the latest chapter of the neverending story of trying to buy Lattelecom and LMT, but will try to do so before I leave for the States on Wednesday to attend an IBM conference in Las Vegas (October 25 -28).

Latvia is in dire need of any revenues to patch its budget deficit and, considering that telecoms have not suffered too badly in the crisis and against a background of rising stock markets in Europe and the US, the two unlisted companies could probably be sold for a decent price. Of course, Kampars and the Latvian government will never see another LVL 500 million bid by the Swedes, as was made a couple of years back in one of the "fat years" of real-estate bubble and lending frenzy. Interestingly, the sum is exactly as much as international lenders want Latvia to cut from its spending in 2010 and 2011 (for a total of LVL 1 billion). But that chance was blown. Maybe they could try for, say, LVL 400 million and settle for LVL 375 million -- these are just my wild guesses. Even without the deep recession, which I think will last at least until 2014 in Latvia, the value of any fixed-line network will decline as everything goes mobile and 4G networks appear. So the best bid has already been lost -- maybe it is time to seize the opportunity.

From Twitter: A Lattelecom executive tweeted me that he believes the company will gain in value because of broadband, IP TV and content distribution (IP TV, video on demand and the like). Welcome to the new web order :).

Finance director named top honcho at Lattelecom

Juris Gulbis, currently chief financial officer and acting CEO of Lattelecom, has been appointed permanent CEO by the company's owners, the Latvian government and Sweden's TeliaSonera. Gulbis had been acting CEO since the April 1 resignation of Nils Melngailis.
Gulbis, born in 1969, received an engineering degree in Latvia and qualified as an accountant in Britain. He worked in banking, finance and accounting positions and was employed by Coopers & Lybrand, the predecessor of Coopers PriceWaterhouse in Latvia at a time when Melngailis was running the audit firm's Riga office.
The new Lattelecom CEO worked for Ave Lat Group, a food and beverages conglomerate owned at the time by the controversial Latvian politician Andris Skele. Later, Gulbis worked for and became director-general of the alcoholic beverages maker Latvijas balzams. For a time, he worked for the alcoholic beverages distributer SPI in Cyprus, a company linked to a controversial Russian oligarch. Gulbis has worked at Lattelecom since early 2007.
Latvian media have been speculating that Gulbis retains loyalties to Skele and may be part of an elaborate and byzantine scheme to sell Lattelecom to Russian interests, perhaps using a tangle of offshore companies that would make the "investor" appear to be a little known West European private equity company. The large US private equity group, The Blackstone Group, now represented by Melngailis in the Baltic region, is still interested in taking a stake in Lattelecom.
Others point out that Gulbis is a professional with loyalties to the owners that employ him and was chosed CFO of Lattelecom partly because Melngailis knew and trusted him because of their time together at the audit company.
Valdis Vancovics, the director of network services at Lattelecom, was appointed deputy CEO. He had been a candidate for the top post.

Latvian telco privatization --writing off yet another year?

Latvia and Sweden are similar in that both countries stop for a while after the Midsummer holiday. This is more pronounced in Sweden, but Latvia's parliament also goes on vacation after June 22, if not earlier.

With the next round of talks on the proposed Lattelecom for LMT swap set for May 21, it is unlikely that anything will be resolved before Midsummer. That essentially kicks the next "round" of the never-ending story into September, which, even if the both parties to the talks decide to go ahead, do valuations, etc., means that nothing will happen before the end of the year. So look to 2009, maybe, as the next possible time when this matter may finally be resolved. But don't count on it. 

Meanwhile, Lattelecom remains leaderless, a few more important mid-managers may leave and the value of the company will continue to drift downwards.

Springtime for Nyberg

The suitors are lining up for TeliaSonera under CEO Lars Nyberg (whence the title). Norway's Telenor, an old flame of Telia (1999) who was left at the altar (or stormed away, forgot which) is back, according to press reports. France Telecom is mulling how to bid for the Swedish telco with enough cash in the offer to attract finicky TeliaSonera shareholders. A merger with Telenor would create a real Nordic giant, though still mid-sized by global standards.
This may leave the half-mother of Lattelecom with less time and energy to deal with the wackbat* Latvian government, so she may just take any deal on offer. In other words, do the share swap using the Latvian State Radio and Television Center, get its 100 % of mobile operator LMT (the most profitable of all of TeliaSonera's subsidiaries, I believe) and forget about any covenants in the deal to functionally seperate Lattelecom into wholesale and retail units. By the time the Latvians get around to doing it -- late 2009 is for the real Pollyanna optimists, to my mind-- the European Union will decree functional separation in any case. So it doesn't matter. What matters is to get the f**k out of bed with the government, get LMT and start turning it into a full service telco (including wireline, DSL, LTE wireless internet, etc. in the next couple of years).
*an amalgam of wacko and batshit. I like it.

The muddlers decide - we pick a new half mother

The Latvian government more or less decided on a scheme for finding a new half-mother for Lattelecom. It is an amalgam of ex-Lattelecom CEO Nils Melngailis and The Blackstone Group's  plan B -- to buy 49 % of Lattelecom and Minister of Transport Ainars Slesers plan to swap 23 % of mobile operator LMT for TeliaSonera's stake in Lattelecom.

How it will work is that the 49 % held by the Swedes will be parked with the Latvian State Radio and Television Center (LSRTC) until it is bought by, most likely, Blackstone. Blackstone will most likely demand an ironclad management contract so that the government doesn't use its remaining 51 % majority to mess with strategy and operations.

TeliaSonera will then do a deal to get the rest of the shares in LMT held by Lattelecom and the state (they will already have the 23 % from the LSRTC and already directly hold 49 %). At the end of the whole Chinese fire-drill, the Swedes will have 100 % of LMT, the Latvian state and Blackstone --100 % of Lattelecom, plus covenants binding them to split Lattelecom into wholesale and retail units, as some other European operators, including Telia, the Swedish unit of TeliaSonera, have already done. 

I am a bit late writing this because I didn't want it to look like an April Fool's joke. Also, I am leaving for the US this morning and won't be writing until I get over there (Boston, then an IBM event in Las Vegas).

The whole thing could still crack up if 1) the Fatherland and Freedom party decides to swamp the coalition boat -- it wanted some kind of auction of 100 % of Lattelecom (they would have a potential ally in Slesers, who wanted  100 % for the state) 2) if the management agreement is unacceptable to the government, or the government's desire to modify such an agreement pushes Blackstone to walk away. 

Then there is the Baltkom/Peteris Smidre proposal.

So there is still a way to go and nothing is certain.

Yet another interesting question -- will Melngailis, who was closely linked to Blackstone's plan B, somehow return to running Lattelecom?  He is rumored to have been offered a position with Blackstone representing the private equity firm's interests in the Baltic, although there is at least one Baltic country that, until April 1, was giving Blackstone the finger. 

Baltkom honcho proposes merger with Lattelecom

Peteris Smidre, the founder and top honcho at Baltkom, Latvia's largest cable TV company which also provides internet, fixed and mobile telephony, has said he and an international investor could participate in an auction of TeliaSonera's 49 % of Lattelecom, after which Baltkom and Lattelecom could merge to form a single group.
Smidre said such a merger would dilute the Latvian government's holding in the merged company to less than 51 %. It would also open up synergies in content distribution -- Baltkom has some 180 000 cable subscribers -- and give Lattelecom access to Baltkom's virtual mobile operator, which runs on the Bite network. With all frequencies allocated, Lattelecom has no chance to start its own GSM/UMTS operator should it leave the TeliaSonera sphere one way or another.
Smidre would not comment to this blogger on which investors he had contacted, but they are rumored to be Citigroup and The Blackstone Group.
The Latvian cable and telecoms entrepreneur (he started Baltcom GSM, then sold it to Tele2) didn't deny that one reason for his proposal was to offer an alternative to the nationalization of Lattelecom proposed by Minister of Transport Ainars Slesers.
Slesers wants TeliaSonera to swap its 49 % of Lattelecom for 23 % of mobile operator LMT held by the Latvian State Radio and Television Center (LSRTC). TeliaSonera would then buy any outstanding LMT shares held by the Latvian state for cash. Lattelecom would then be 100 % owned by the state and the state-owned LSRTC.
This is a plan that passes the Alfred E Newman test*, sorta. The possible insanity is in believing that the Latvian government will decide anything at its very appropriately scheduled April Fool's Day meeting.
* not insane

More indecision, as usual...

The Latvian government, having called an extraordinary meeting of the Cabinet of Ministers (that is, of itself) in order to make a decision about how and/or whether to privatize Lattelecom, has come to no decision and will try to decide again at its regular meeting on April 1.  April Fool' s Day, how appropriate.

My thoughts (writing from Stockholm where I did an interview) is that Prime Minister Ivars Godmanis, scheduled to visit Sweden on Monday, March 31, avoided a possible split in the coalition between his (and the Minister of Transport Ainars Slesers) party and the Minister of Economics Kaspars Gerhards of the nationalist Fatherland & Freedom, who have vehemently opposed Slesers' plans to  nationalize Lattelecom (see earlier posts).

Having a Latvian government come apart on April Fool's Day would be more than appropriate. We shall see...

The half-mother says yes, the government --???

TeliaSonera, the long-suffering half-mother of Lattelecom (49%) has officially agreed to a proposal by Minister of Transport Ainars Slesers to a deal that would essentially nationalize Lattelecom but leave TeliaSonera with 100 % ownership of mobile operator Latvian Mobile Telephone (LMT).
This is an exhumed version of what Minister of Economics at the time, Aigars Stokenbergs proposed in 2006, when he said that TeliaSonera would not be allowed to buy both Latvian telecoms operators. TeliaSonera and the government did valuations of both companies for a share swap and cash payment deal very similar to what Slesers wants to see done. The earlier deal was muddled about and never done.
For TeliaSonera, this would mean that after several years of muddling around the issue, it would at last be settled, even if as Plan B (the Swedes get only LMT). For Sisyphus (Kenneth Karlberg, head of Mobility at Telia Sonera), it means that he gets the stone to the top of at least hill B.
If that happens, LMT will be developed as a company capable of anything that Lattelecom currently offers, at least in terms of telecoms and internet. Lattelecom will be split, as was the Telia branded operation in Sweden, into wholesale and retail units. LMT will probably start a limited fixed line business, while Lattelecom will have very few options for offering mobile services.
TeliaSonera must know that the chances of Lattelecom being ridden into the ground have increased signficantly with the resignation of Nils Melngailis and if the company is nationalized and held 49% by the Latvian State Radio and Television Center (LVRTC), which has little global telecoms experience.
But wait, the Latvian government, like a finicky old maid (this is how Dienas bizness described it), is split on the issue of how or whether Lattelecom should be privatized at all. The Ministry of Economics claims there are legal obstacles to Slesers' proposed deal. The Ministry of Transport gleefully announced that the Swedes had agreed and there were no problems.
On March 28, there will be an extraordinary cabinet meeting to decide this. One side or the other will or could win, but the issue could also strain the government coalition. It would not surprise me that if someone, say, the Fatherland and Freedom party economics minister, mustered enough votes to tilt against Slesers, Slesers would pull his religious-right wing Latvian First Party out of the coalition (including the PM, Ivars Godmanis). If that doesn't happen. there is still the question of, having rejected Slesers plan and given the finger, yet again for the Nth time to Sisyphus, WTF do we do now?
I don't think the wackbat* government has a clue...
* this was defined in an earlier post, I have offered it the the urban slang dictionary online :)

Extra government meeting may decide on Lattelecom

The on-again, out-again, in-again Finnegan* of the never-ending Lattelecom privatization/nationalization/let's donate it to the Martians -- the Latvian government, is holding an extraordinary meeting on Friday, March 28 to discuss this issue. To decide? DFHYB**.
Anyway, the PM, Ivars Godmanis, is heading to Stockholm March 31, probably to tell TeliaSonera about whatever new wackbat*** alternative the government has cooked up this week. But hey, by March 31, it will be a) a new week b) the eve of April Fool's day.
The un(?)fortunate thing is, I will be in Stockholm March 28, but heading back to Riga on March 29. I could try buying a one-way Ryanair and staying the weekend for Godmanis' press conference scheduled for the Latvian Embassy on March 31, but then I would have to fly back on April 1, only to fly on to the US at an ungodly hour on April 2 (going to an IBM event in Las Vegas via Boston). So that will not work :(.

*from some doggerel about James Joyce's Finnegan's Wake.
** Don't Fuckin' Hold Your Breath
*** combining wacko and batshit, two words for something deranged :)

Privatization agency objects to Lattelecom nationalization

The Latvian Privatization Agency (LPA), the formal holder of the state's 51 % stake in fixed network operator Lattelecom,  has said in a report that it saw legal obstacles to Minister of Transport Ainars Slesers proposal to completely nationalize the company.

According to news reports, Minister of Economics Kaspars Gerhards (whose ministry supervises the LPA) confirmed that there were legal objections to the proposed swap of TeliaSonera's 49 % holding in Lattelecom for the 23 % stake in mobile operator LMT held by the Latvian State Radio and Television Center (LVRTC). Citing confidentiality, he declined to disclose details about the LPA's position. The agency had been asked to evaluate different proposals for changing the current ownership of Lattelecom, including a sale of the company and LMT to TeliaSonera for 500 million LVL. 

It also appears now that there will be an emergency meeting of the government on March 27 ahead of a March 31 working visit by Prime Minister Ivars Godmanis to Sweden, where he will most likely meet with TeliaSonera and present the government's position.

The position of the week, if you ask me. We will see what new twists and turns this neverending, increasingly bizarre story takes in April...

Latvian minister out on a limb on Lattelecom?

Minister of Transport Ainars Slesers may have gone out on a limb offering to arrange the sale of TeliaSonera's 49 % stake in Lattelecom to a third party (not The Blackstone Group that has been bidding so far).
Minister of Economics Kaspars Gerhards said that this was not the official position of the government, which may be declared after the next Cabinet of Ministers meeting on March 18, when all options for privatizing Lattelecom (and mobile operator LMT) should have been considered.
Gerhards said that any offer to TeliaSonera should be considered "the initiative of (Slesers) on hios own"and not the position of the Latvian government.
It is beginning to look like an internal dispute may be breaking out inside the coalition government. Slesers has called a press conference for 1430 March 13 to explain his position.
The Minister of Transport has been considered somewhat of a loose cannon, having earlier approved, for instance, airport fee cuts for low-cost carriers seen as discriminatory and in violation of European Union rules. During the 2006 election campaign for Latvia's parliament, the Saeima, there were campaign posters of bulldozers and space shuttle launches apparently to symbolize his approach to getting things done.

The rock rolls back for the half-mother

News agencies are reporting that a planned meeting March 12 between Sisyphus (Kenneth Karlberg) of TeliaSonera, the half mother of Lattelecom and Latvian government officials has been cancelled.
Karlberg, currently head of TeliaSonera Mobility, had planned to meet with Minister of Economics Kaspars Gerhards and Minister of Transport Ainars Slesers to argue in favor of the modified proposal presented by TeliaSonera to buy the government's stakes in Lattelecom and mobile operator LMT.
In other words, the rock has rolled back down again, just as in the Greek myth. Some say that the futile attempts to break down the bizarrely- (non) argued resistance of the Latvian government have become an obsession for TeliaSonera, a need for the Swedish group to prove that it can get something done (after, not without struggles, getting control of both fixed and mobile telcos in Estonia and Lithuania).
Slesers is said to favor a deal where TeliaSonera would sell its stake in Lattelecom to The Blackstone Group. However, this plan B is already dead in the water with one essential element missing -- Lattelecom CEO Nils Melngailis has resigned. The fact that some other key staff, unsurprisingly, his press secretary Maija Celmina, are leaving indicates that this film will not be rewound.
There will be another indecision point for the government on March 18. It looks like the wise men and women running the country have made the decision by indecision to let Lattelecom drift toward the devil's mother (pie velna mātes), at the same time driving off a giant American investor (who is, to be sure, experiencing some financial pain from what is happening on the markets) with all that implies for the image of Latvia's investment climate.

LATE BREAKING NEWS

It seems Sisyphus did meet with Minister of Transport Ainars Slesers today, contrary to the muddled disinformation spread by, alas, my own news agency LETA. I may be able to get more info on what they discussed on March 13, when Kenneth Karlberg is back in Stockholm, doing exercises for his next run up that hill with the big rock.
My guess is that Slesers verbally told Sisyphus to work something out with Blackstone, but then Blackstone is all but officially out of the picture.

No decision on Lattelecom privatization

As predicted in this blog, the Latvian government failed on March 11 to take any decision on the privatization of Lattelecom (and the parallel sale of the state's remaining stake in mobile operator LMT).

However, Prime Minister Ivars Godmanis indicated to journalists that the government had not changed its view that both companies should not be sold to the same buyer -- TeliaSonera. The Swedish telecoms group had said it was willing to modify its offer for both operators and promise to split Lattelecom into  legally separate wholesale and retail entities. This has been done in Sweden with TeliaSonera' s network operator Skanova.

At the same time, the government has effectively rejected two alternative bids -- the proposed management and staff buy-out financed by The Blackstone Group and a bank consortium and a "plan B" whereby Blackstone would buy out TeliaSonera' s 49 % holding in Lattelecom and later bid on the 51 % held by the government.

However, even the plan B bid was based on the continued management of the company by CEO Nils Melngailis and the signing of a management agreement that would have kept the government at arms length from Lattelecom.

Melngailis is definitely leaving the company on April 1, and some of his staff have already moved on. Press secretary Maija Celmina is joining the press staff of President Valdis Zatlers'  office. Agris Tamanis, a key executive at Lattelecom BPO is also said to be leaving his post on April 1.  It appears he will be joining a start-up together with social network draugiem.lv founder Lauris Liberts. It is not 100 % certain that Tamanis departure has anything to do with the failure of the MBO and Melngailis departure, but it could have influenced a choice to work with the start-up full time.  Among Lattelecom middle management there also appears to be a sense of uncertainty as to what will happen with the company and the direction set by Melngailis after April 1.

And now for some weird theories:

1) A seemingly frivolous lawsuit by an unknown, small Latvian company, Time Investments demanding participation in the privatization of Lattelecom (now heading for Latvia's highest appeals court) is rumored to be backed by Ventspils business interests and possible investors from Russia. Claiming to be acting on behalf of unnamed investors, Time Investments is seeking to set aside the rights of first refusal of the current stakeholders in Lattelecom and open the privatization to any and all. 

2) Minister of Transport Ainars Slesers is rumored to have supported the MBO and the Blackstone plan B, having seen the implications of rejecting a global American investor and the benefits of having American investment. In the wake of the "giant" Blackstone, other American investors would come to Latvia. Naturally, Slesers business partners and even the minister himself could benefit (if political conditions change) in a legitimate way. Some American deals could go to Slesers business associates and in the future, there could be deals for a then ex-minister.

A week or more of indecision ahead on Lattelecom

On March 12, a Latvian government working group will hear the half-mother TeliaSonera's arguments, yet again, for buying the remaining government stakes in Lattelecom (51 %)  and LMT (28 %, depending how you calculate it) for a mere 500 million LVL (the price, at least, of a nice bridge*). This will concern the augmented offer which includes a promise to split Lattelecom into wholesale and retail units , plus to place some of TeliaSonera's R&D in Latvia. 

Presenting the case will be the Swedish Sisyphus (the legendary Greek dude condemned to rolling this huge rock up a hill repeatedly, only to have it roll back again) Kenneth Karlberg TeliaSonera's head of Mobility.  Kenneth knows the routine, he will still know it when he retires in 15 years and hands off the task of dealing with the indecisive Latvians to his succesor. 

Whatever the working group recommends (I suspect it will be a) nothing or b) send them svenssons to hell) will then be presented to the government (the Cabinet of Ministers) for their March 18 meeting. I would bet a modest amount that the government, too, will table this (do nothing) or, unremarkably, reject the Swedes yet again.

I was just reading in the latest WIRED magazine that autism may not be a disease but simply a different way that people's brains are put together (i.e. to prefer mumbling, head banging and deriving multi-digit prime numbers instantly to what we consider normal). Anyway, the majority way of wiring brains is called neurotypical (i.e. the way most people are).

Why do I bring this up? I think the reason that Kenneth Sisyphus Karlberg isn't getting anywhere, and that Nils Melngailis has been hounded (by non-barking hounds) from the post of CEO, along with The Blackstone Group being shown the door, is that the Latvian government is not neurotypical. Whatever and however these people think, is not of this planet and may involve bizarre combinations and assumptions.

Like autistic folks, they have not responded (so I am told) to any written communications (although many real autistics prefer, if they are able, to write rather than speak). The government may well be seeing(behind TeliaSonera's offer) some kind of non-obvious threat, or it may have its own scheme of what to do with Lattelecom in mind, perhaps with regard to hidden local interests. That could involve running the company into the ground in order to "get" it on the cheap, but then again, what, exactly, would one get? Maybe a barely profitable fixed network operator with 500 000 customers ( 120 000 lost in coming years to mobile for fixed substitution). It takes non-neurotypical thinking to understand what is going on.

It should be an interesting, though in many ways predictable 10 days ahead. I hope I am wrong, but hope is the last to fade, isn't it? :)

*the so-called Southern Bridge now being built across the Daugava, the river that bisects Riga, is estimate to cost around LVL 500 million, by my reckoning, the same or more in present day dollars than the huge Verrazano Narrows Bridge in New York, which was the costliest bridge in the US at USD 320 million when finished in 1964.

In bed with the loonies?

Lattelecom management as represented by CEO Nils Melngailis and The Blackstone Group have officially expressed their interest in buying 49 % of Lattelecom from Sweden's TeliaSonera. This comes on the heels of a USD 1 billion bid by TeliaSonera to buy 100 % of both Latvian telcos (Lattelecom and Latvian Mobile Telephone/LMT).

The Latvian government has already repeatedly declared that it will not let the Swedish group own both companies, citing competition worries.

If Melngailis proposal is accepted, it would leave TeliaSonera free to execute its "Plan B", to acquire 100% of LMT and develop it as a full-spectrum operator (wireless & fixed wireless voice, wireless broadband, maybe even TV). Against this, Lattelecom will have to compete (despite any formal agreements on management and strategic decision making) with one arm tied behind its back. 

Over the next three years, Latvia faces both municipal and national parliamentary elections in a time of political turbulence and the possible rise of new populist political movements. One can hardly expect to have the government as a rational partner. Already, the government has changed its mind several times in the last couple of months about what to do with Lattelecom -- sell, keep, sell again, auction, etc...

All I can say is -- good luck!

Melngailis last stand - why?

Why is Lattelecom CEO Nils Melngailis, whose MBO plan was rejected by the government and who was removed (for no clear reasons) as board chairman, still hanging on?
One explanation is precisely that -- no clear reasons for him to "take the hint" and resign. Lattelecom has performed well in its financial indicators, and proposing an MBO that was initially accepted by both shareholders is not a a breach of trust as some Latvian commentators have suggested. Were this so, there would be very few MBOs in the world, as any management member proposing one would face dismissal for disloyalty, breach of trust and the like.
It is clear, however, that the Latvian government does not want Melngailis running Lattelecom, and TeliaSonera, the other owner, is probably not completely at ease with him. However, neither side can really show cause for his dismissal, so that it is an issue of honor for Nils not to resign "under a cloud" that has nothing of substance in it. Indeed, to propose the MBO and to get so far as to have The Blackstone Group and a bank consortium assembled, ready to execute, was a high risk move, showing entrepreneurial courage. It should, in proper context, be a significant merit on Nils CV even though it was ultimately torpedoed by the Latvian government.
Melngailis was recruited and hired to lead Lattelecom, to be a strategist (coming from IBM's Business Intelligence unit), not as a hard-charging, win-at-all-costs dealmaker. That he got as far as he did with the MBO is remarkable, given that, on the government side, we are dealing with capricious and irrational decision-makers.
Which brings us to the next question: WTF are Blackstone still doing here? If they want to buy 49 % of Lattelecom and share it indefinitely with the loonie-tunes 51 % government owner, there is a bridge that many Blackstone execs cross every day that may be for sale...
Here, again, the reason may be Blackstone's reputation as hard bargainers -- bulldogs, as one source put it. So they are playing out the bulldog role until -- I think quite soon -- they will drop their end of the bone.
An interesting question -- what about the four banks who are putting up LVL 200 million of the LVL 290 million deal. How long can they provisionally budget significant funds (around LVL 50 million from each) that will never be lent. Isn't it time to write off this deal and rebudget the lending plan for 2008?
My prediction -- the whole thing will be dead by Easter, Blackstone gone and Nils heading for a continued international career in a less irrational business environment. The next confrontation may well be TeliaSonera against the government's efforts to force it to sell out. A straight deal, Lattelecom shares plus cash for Latvian Mobile Telephone (LMT) and basta was also ignored by the government. They are the wavering, paranoid (everyone will sue us), hallucinating (many will come to an auction of Lattelecom), insecure and blatantly ignorant (of international business practices) villain (or simply idiot) in this whole game.

Lattelecom CEO comments MBO rejection

Lattelecom CEO Nils Melngailis comments the rejection of the MBO proposal (would have been the largest transaction in Latvia to date). I filmed this while Nils was speaking to a journalist from Bloomberg News.

Click To Play

My personal view: It is time for Nils to move on in his career. There is no point in being a masochist in a business environment (Lattelecom's state owner) that is more like a monkey house or an insane asylum that a place where rational choices are made.

Latvian government kills Lattelecom MBO

The Latvian government has rejected the LVL 290 million management and staff buyout proposed by Lattelecom CEO Nils Melngailis and financed by The Blackstone Group and a consortium of banks.
Prime Minister Ivars Godmanis proposed, instead, that TeliaSonera sell its 49 % holding in Lattelecom to Blackstone or someone else, getting a chance to buy mobile operator LMT in return. At some undefined time in the future, the government will then auction its 51 % share of Lattelecom to a select shortlist of serious European Economic Space (European Union plus Switzerland and Norway) companies but NOT TeliaSonera.

First impression-- I was right that this deal would be effectively killed by the government.
The government's scheme is, to say the least, bizarre. It rejects the only "serious EU telco"that has been trying to buy Lattelecom for the past five years on specious anti-monopoly grounds. There is no one I can imagine who would bid for Lattelecom, a fixed-network only company 49 % owned by god-knows-who (if Blackstone, as one would expect, politely declines to buy in and have to deal with these lunatics).

Look for Blackstone and Nils Melngailis to bow out soon. TeliaSonera may make one last bid, but probably write off its holdings in Lattelecom as a stranded investment.
The company will flounder for a while, no one will come to the auction, and the state will have effectively screwed up a potentially powerful Latvian company.

I am somewhat saddened to have been right...

Another death knell rings for the Lattelecom MBO

Sorry, folks, for being a bit behind on this, but the outgoing Latvian government on December 18 decided not to extent the memorandum of understanding with Lattelecom, The Blackstone Group and the bank consortium and TeliaSonera regarding the management and staff buy-out proposed by Lattelecom CEO Nils Melngailis.
The issue will be decided by "the next government", in effect, the present government 2.0 (shaken and stirred a bit), where attitudes and opinions are unlikely to change.
My call -- the whole thing will be muddled around until 1) Blackstone backs off and the consortium falls apart 2) Melngailis resigns. At the end of a day lasting 2-3 years, we may see TeliaSonera at last collecting what it has been waiting for -- both Latvian Mobile Telephone (LMT) and whatever is left of Lattelecom.
An outside chance is that the new government will organize (after a decent interval) some kind of MBO or sell-off 2.0 that will have the "right" bidders, including local interests. Though it is strange to bleed something half to death just to get your claws into it...